Logistics

 Optimal lot size, Q*= √(2DS)/(hC) D = Annual demand of the product S = Fixed cost incurred per order C = Cost per unit h = Holding cost per year as a fraction of cost Annual material cost = CD Number of orders per year=D/Q Annual order cost = (D/Q)S Annual holding cost = (Q/2)H=(Q/2)hC Total annual cost TC = CD + (D/Q)S + (Q/2)hC Optimal ordering frequency n*=D/Q*=√(DhC)/2S for more than one articles n* = √ (D1*h*C1) + (D2*h*C2) + (D3*h*C3) / 2S° S° = S(common order cost) + s1+s2+s3 (1,2,3 - Order specific costs) Annual order cost = S°n Annual holding cost = (D1 h C1 / 2n) + (D2 h C2 / 2n) +(D3 h C3 / 2n) Ex: D: 1.000 * 12 (Months) = 12.000 Units S: Order cost per lot = 4.000 € C: Unit cost per computer = 500 € h: 20% or 0,2 ----------------- Optimal order size = √(2*12.000*4.000)/(0,2*100)=980 § Cycle Inventory = Q/2=980/2=490 § Numb. of orders per year = D/Q=12.000/490=12 § Annual ordering and holding cost = = (D/Q)S+(Q/2)hC= 12*4000+490*0,2*500=97.980€ §Average flow time =Q/2D= 980/(2*12.000)=0,041year=0,49month Source: Supply Chain Mgmt, Sunil Chopra, Peter Meindl